$CRESBLD / 8591 (CREST BUILDER HOLDINGS BERHAD)
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Crest Builder (MktCap: RM120m): Construction sector laggard play, valuation seems cheap
Meeting takeaways
Financials
🔷 Construction outstanding orderbook stood at RM1.8bn (4.5x 2023 construction revenue). Aiming to recognise RM450-500m in 2024, 2025 target RM550-600m construction revenue
🔷 Construction division focus on high-rise building, target 5-7% PBT margin for recent external construction jobs (secured since 2022)
🔷 Construction margins expecting to recover back to 5-7% PBT margin in 2025, driven by jobs secured after 2022
🔷 Property development revenue will be supported by it RM313m unbilled sales form its Interpoint (RM642m GDV; 63% take-up rate), billing recognition is ramping up expect to reach peak recognition in 2026
🔷 Overall group: 2024 revenue RM520-530m, RM8-10m PAT. 2025 will be better as better construction margins kick in. 2025 RM20-25m PAT guidance, 2026 potentially RM40m
🔷 Borrowings will gradually taper down in the next 10 years as they pay down the c.RM300m borrowings for UITM concession project
Outlook/guidance
🔷 Construction division typically target at least RM500m orderbook replenishment annually. 2024 exceeded target by securing RM935m YTD, while mgmt is expecting another RM150-200m job in 2H24 bringing potential new wins to RM1.1bn for 2024. Looking to revise upwards replenishment target to RM600m for 2025 and RM800m for 2026
🔷 Strong clientele for construction division including SimeProp, UEM Sunrise, ParkCity, Sunway and Kiaramas
🔷 Tendering for 6 external construction jobs with a combined value of RM2.5bn
🔷 The mgmt see opportunities to capture more Sunway jobs as Suncon switch their focus away from internal high-rise residential jobs, some of the upcoming tender opportunities are Sunway Serene 2 and Sunway Flora 2
🔷 MEP division target 10% PBT margin but contract value smaller, annual turnaround around RM10-20m (under construction segmental revenue). Mainly residential MEP jobs, still trying to penetrate into industrial jobs (ie: warehousing and factories). Not aiming for DC jobs.
🔷 Prop development do not have remaining landbank, on-going projects are Interpoint@ Klang (RM642m GDV; 63% take-up rate) and Latitud8@ Dang Wangi (RM930m GDV). Property development target 10-12% PBT margin
🔷 Latitud8 (RM930m GDV) secured back in 2012 but there was some issues that dragged the progress severely. Recently appointed a turnkey developer to take over the development and construction of this project, construction just started in Jan-24. Crest Builder won’t get to enjoy property development margin of PBT 10-12%, mgmt is guiding 6% GP margin for this project under its entitled profit sharing, unlikely to have meaningful contribution to the group.
🔷 Property investment portfolio consists of 2 office towers, The Crest and Tierra Crest.
The Crest occupancy rate 32% (occupied by Crest Builder themselves), Tierra Crest occupancy rate 91% main tenant is UNITAR which occupied 80%, 20-25% PBT margin. Tenancy agreement 3+3, 10% upward revision rate
🔷Concession for UITM Tapah 2 main cost is financing, c.RM300m of the group’s borrowings are to fund this project. PAT contribution around RM1-2m annually (maintenance income + finance income)
👨💻 Based on the mgmt profit guidance of RM25m for 2025, this implies 5-6x forward PE, which is at a discount to industry average of 12-14x for high-rise construction peers. We believe the profit guidance of RM25m is quite achievable mainly driven by margin recovery for its construction division and gradual ramp up for its property division